The internalization of externalities in the production of electricity:willingness to pay for the attributes of a policy for renewable energy

Reference:

Longo, A., Markandya, A. and Petrucci, M., 2008. The internalization of externalities in the production of electricity:willingness to pay for the attributes of a policy for renewable energy. Ecological Economics, 67 (1), pp. 140-152.

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Abstract

This paper investigates the willingness to pay of a sample of residents of Bath, England, for a hypothetical program that promotes the production of renewable energy. Using choice experiments, we assess the preferences of respondents for a policy for the promotion of renewable energy that: (i) contributes to the internalization of the external costs caused by fossil fuel technologies; (ii) affects the short-term security of energy supply; (iii) has an impact on the employment in the energy sector; and (iv) leads to an increase in the electricity bill. Responses to the choice questions show that our respondents are in favour of a policy for renewable energy and that they attach a high value to a policy that brings private and public benefits in terms of climate change and energy security benefits. Our results therefore suggest that consumers are willing to pay a higher price for electricity in order to internalize the external costs in terms of energy security, climate change and air pollution caused by the production of electricity.